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Hi mike, A co. has 25% equity shares in Bco. A co has made URP of $2000 on its sales to the associate.
1.Debit cost of sales(CP&L) $2000
Credit investment in associate(CSFP) $20002.if the associate had made the sale to the parent the adjustment would have been :
Debit cost of sales(CP&L) $2000
Credit inventory(CSFP) $2000.a) do we need to make any adjustment in retained earnings and inventory of associate after above adjustment while answering exam question.
b) if there is an impairment of investment in associate are we to deduct it from cost of sale or from the share of profit of parent co in CP&L .
thanks while appreciating ur tireless effortIf you were to treat pups where an associate is involved in the way that I teach, then neither of your entries above is correct!
My way (sorry Frank Sinatra) would be to put the entire $2,000 as a deduction from the associate’s retained earnings before the parent takes its share of the associate’s post-acquisition retained earnings
The entry effectively is debit consolidated retained earnings and credit investment in associate with 25% of $2,000 ie with $500
As for the rest of your post – I think my entry has dealt with those queries
pardon, i don
t get this statementMy way (sorry Frank Sinatra)`and i have seen this entries in BBP study kit although i changed the figures pg 176. i prefer ur way because it is straight forward. so that means in ur way, sir if H co, has pups of $2000 and 25% stake in A co.
The entire $2000 would be put as a deduction from associate ret. ern first. and the entry would be debit consolidated retained earnings and credit investment in associate with 25% of $2,000 ie with $500. thanksplease, ignore the earlier post. correct me if i am wrong, parent co. sold goods to its 25% associate co. for $500,000 at a profit margin of 20%, none of the good was sold @ year end. Associate co. has PAT of $800,000.the cost of investment in associate by parent co. is $1,000,000.
solution.
PUP is $100,000, we deduct this amount from PAT of associate $800,000-$100,000=$700,000.in Consolidated profit & loss. share of profit of associate co. 25% *$700,000=$175,000
In Consolidated statement of financial position. Assets side, investment in associate= $1,000,000 + $175,000
Equity side. W3. Ret. earning of parent co. add $175,000.hope i got it right.
Yes, that’s fine – so long as the Investment in Associate has not just the cost of the investment but 25% of ALL the associate’s post-acquisition retained profits
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